A Statistical Approach to General Equilibrium with Production
AbstractThe paper studies a two-period stochastic economy in which a firm's investment influences the probability distribution of its profit. We take a normative approach, asking which criterion firms should maximize to obtain an equilibrium which is Pareto optimal. We find that a firm should maximize a non-linear function of its profit rather than its market value. We also study the role of prices at conveying the information that firms need in order to choose their investment optimally.
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Bibliographic InfoPaper provided by University of California at Davis, Department of Economics in its series Working Papers with number 07-5.
Date of creation: Jan 2007
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Other versions of this item:
- Martine Quinzii & Michael Magill, 2007. "A Statitical Approach to General equilibrium with Production," Working Papers 75, University of California, Davis, Department of Economics.
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